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Can the Parabolic Move in Feeder Cattle Continue?


Feeder Cattle gapped higher in May 2013 and has been trending higher since. Much of the 62% gain seen since the May low has come in 2014, as May through June saw the price accelerate upwards.

July has witnessed a relatively strong pullback, compared to prior pullbacks this year.

Figure 1. Feeder Cattle Futures (GF - August Contract)
cattle futures

There are a couple ways to play this. Those expecting the uptrend to continue, or at least re-test the July 219.65 high, can place long trades around the 210 mark, with a stop near or below 207.50. This potentially represents a 4:1 reward to risk ratio (or greater if the uptrend continues).

The July drop wasn't big enough to technically put the uptrend in danger. Yet those who feel this market is overextended and are looking to participate in potential downside can trade a break below the July 11 low at 207.65. Stop is placed near or above 213.50.

Fibonacci extension levels place targets just above 201 and 193.50. If drops of this magnitude occur, especially reaching the latter target, feeder cattle will be in a downtrend. The reward to risk isn't ideal on the short position unless the price reaches the latter target or lower.

One factor on the side of the bears is volume. Over the last three years volume levels, like those seen in July when this correction started, have only been associated with what ultimately ended up being larger (multi-wave) declines.

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